In celebration of Black History Month, our guest for today is Eric T. McKissack. Eric is a graduate of the Berkeley-Columbia Executive MBA program. Currently, he is an Investment Executive and Independent Board Director at different companies and nonprofits, including FlexShares Funds and Morgan Stanley Pathway Funds. He is also a Board Member of McKissack & McKissack, a privately-held, family business that is a national architectural, engineering, and program and construction management firm.
Even though he is an only child, Eric grew up in a large extended family of business leaders and entrepreneurs who had a strong family identity. In fact, his grandfather and great uncle were the first Black registered architects in the US.
Because of the influence of the family business, Eric went to MIT for architecture but ended up in Sloan to pursue his own interests in business. He started in banking but then worked many years in investment management before starting Channing with his partners. He shares his journey from that pivotal moment, getting his executive MBA while founding an investment firm, how they overcame the challenges along the way, and how one can succeed in this space.
This episode is valuable for people who aspire to start their own investment firms or join the board of directors as Eric shares his wealth of experiences and motivations to be in the boardroom of successful organizations.
On starting his own investment firm
“Another pivotal moment in my career, I got to a point where I felt that either I would stay where I was indefinitely, and that would be the duration of my career and be my experiences, or I could have the experience of starting a firm of my own. While I had joined Ariel early on, I was not a founder. And so, it was like a fork in the road kind of opportunity in my mind, and I took it.”
On Channing, his investment firm, surviving the great recession
“Certainly, starting a firm is challenging at any time and place. But also, the industry had changed a lot from early in my career. It wasn’t long before the Great Recession hit, so there were a lot of challenges. Nevertheless, we were able to survive those. I always say that we got through that period, and Lehman and Bear Stearns didn’t. So, we felt we had something to be proud of, to get through the great recession. And the firm continues on with my partners.”
On investment markets being all about human nature
“Sometimes, periods of overvaluation and undervaluation can last very long, longer than the patience of your clients. Clients may not be patient enough to recognize that there’s a bubble brewing and want to go where they think the grass is greener, to another manager, or do a reallocation. Ultimately, markets are still about human nature no matter how much technology is introduced into the process. And human nature can sometimes lead to business outcomes that are not favorable even for the most talented investment managers.”
On raising capital for their first fund as a minority-owned firm
“There are always challenges raising money in any business or any investment entity. And I can’t say that the challenges were strictly based on pure discrimination. But I think what often happens is that certain types of resumes get more of a path or more of a benefit of the doubt than others. That’s not to say that doesn’t happen for some diverse candidates, that they have the same kind of resumes, but that wasn’t the background that I had.
I came out of a minority-owned firm to launch another minority firm. And while that firm had a great track or reputation, I don’t think we necessarily got the same benefit of the doubt. It was more like, “Okay, well, let’s see what you can do in this new environment. And then we’ll give you money if we like what we see.”
Who succeeds in founding their own investment firm and why
“The people who are most successful at it are those that have been able to develop track records through prior experience and have the kind of blue-chip backgrounds. But very often too, it takes a certain person to decide they want to do that because if you’re at a successful firm and you have a great track record, then a lot of people are very comfortable staying there because they are very often making very high compensation. There may be golden handcuffs. There are all kinds of reasons why starting a business is something you have to be highly motivated about.”
(Transcripts may contain a few typographical errors due to audio quality during the podcast recording.)
[00:00:00] Sean Li: Welcome to the OneHaas Alumni podcast. I’m your host, Sean Li. And today we’re joined by Eric McKissack. Eric is an experienced CEO, entrepreneur, portfolio management executive, and independent board member. If you go on his LinkedIn, it’s a pretty long list of companies where he serves as a board. But as a founder and CEO, most recently, CEO of Channing Capital Management, LLC, he was at the helm at the Chicago-based investment management firm from its inception in 2004 to the end of 2019. The firm, which specializes in domestic and international equity investing, manages over 2.5 billion in assets. And for a variety of institutional clients, including public employees, retirement systems, corporations, universities, foundations, mutual funds, and Taft-Hartley plans. Last but not least, he is a Berkeley Haas alumni. He was part of the Berkeley Columbia Executive MBA program, class of 2004. Welcome to the podcast, Eric.
[00:01:06] Eric McKissack: Thanks, Sean. It’s a pleasure to be here.
[00:01:08] Sean Li: Eric, we like to start off these interviews, hearing about your background, where you’re from, how you grew up?
[00:01:16] Eric McKissack: I grew up in Nashville, Tennessee, and from a large extended family. Although I, myself, was an only child. My father is one of six boys. And so, we all have the same last name, those in my generation. Our grandfather and great uncle had been entrepreneurs. So, we had a strong family identity. And I had role models in the family of business leaders and entrepreneurs, even though it was in the south and it was a very challenging time for Black Americans to be business people.
[00:01:54] Sean Li: Did you spend all your time in Nashville growing up?
[00:01:58] Eric McKissack: I did. I went to elementary school, high school there. I didn’t leave until I went away for college. So, I have a very fond memory of a very warm, extended family and a strong family identity as a result of that. And Nashville, although I mentioned Southern location, Nashville had a strong educational environment for its Black residents because they had a number of historically Black colleges there. So, I actually had lots of examples of people who were professionals and educators and the like, and I think I’ve benefited from that exposure.
[00:02:36] Sean Li: That’s amazing. What led you to Boston for school? For MIT?
[00:02:42] Eric McKissack: You know, that’s a great question. I had the opportunity to, having never been to Boston, or really not much out of Nashville, before my late teens, mid-teens, I got an offer to visit the campus on MIT’s dime. So they were very interested in attracting diverse students at the time. And I guess they thought, okay, unlike a college athlete who might get that kind of deal, they sent me a plane ticket to come visit the campus. And since I hadn’t seen many of the other campuses that I was interested in at that time, that sold me, and as well as one of my uncles who was an architect, running the family business said, “Oh, if I could have gone anywhere, I would go to MIT.” That wasn’t available to him in his era. So I suppose that combination of things led me to MIT.
[00:03:33] Sean Li: And what did you decide to study there?
[00:03:34] Eric McKissack: That’s a really good and important question. I went there for architecture because that was the family business, and engineering and design. My grandfather and great uncle were the first Black registered architects in the US so there was a family business that was built on their launch. And that continues on in a couple of my cousins of this generation. So I went there initially for that. That was part of my uncle’s pushing because he was the one who was running that business at that point. My founding relatives, ancestors, were deceased by then. So, he pushed me in that direction.
But ultimately in the category of questioning the status quo, I felt that I should pursue my own interests. And I also decided or felt that, in addition to being engineers and architects, they were also business people. They did real estate development and some other things later in their business careers. I’m speaking of my grandfather and great uncle now. So, I ended up going into the Sloan school undergrad there at MIT.
[00:04:37] Sean Li: What did you do after college with your Sloan degree?
[00:04:40] Eric McKissack: I worked for a few years in Boston, in banking, and did have some part-time educational experience. I ultimately ended up in Chicago, getting a job in investment management insurance which was my goal. I was working in more of a credit area for what’s now part of Bank of America. Bank of Boston is a really big unit that became part of the avail ultimately. And then I wanted to get into investment management and there weren’t any opportunities available for me in New England. But I was able to do so at what was in first Chicago, which is now part of JP Morgan & Chase in part of all of the bank roll-ups. And it was there that I got my first equity research experience. And then I met the founder of Ariel Investments and was able to join Ariel and have got my portfolio management equity research background that comprised most of my career.
[00:05:42] Sean Li: What led you to go found your own investment firm?
[00:05:49] Eric McKissack: That’s also another pivotal moment in my career. I got to a point where I felt that either I would stay where I was indefinitely and that would be the duration of my career and be my experiences or I could have the experience of starting a firm of my own tonight. While I had joined Ariel early on, I was not a founder.
And so it was like a fork in the road kind of opportunity in my mind. And I took it and launched the firm with a couple of other partners. It turned out to be, I would say, a mixed blessing. Certainly starting a firm is challenging for anyone, at any time in place. But also the industry had changed a lot from early in my career. Obviously, the growth of alternative strategies, indexing becoming a more powerful asset-gathering mechanism, even the novelty of minority firms was not as unique as it had been in earlier years.
And then finally, starting a firm in 2004, it wasn’t long before the Great Recession hit. So, there were a lot of challenges. Nevertheless, we were able to survive those. I always say that we got through that period and Lehmann and Bear Stearns didn’t. So, we felt we had something to be proud of, to get through the Great Recession. And the firm continues on with my partners in the least.
[00:07:08] Sean Li: That’s amazing. I’m really curious if you don’t mind me asking, what are some of your investment theses in the beginning?
[00:07:13] Eric McKissack: We were longingly managers so we did not offer a hedge product and we were public markets. So in some sense, we were old-fashioned stock pickers focused primarily on small and mid-cap companies. We had a value orientation, and that was similar to what I had done in my career at Ariel Investments. And I think that helped us to get off the ground that I had a track record of running a product for 12 years and under that strategy in which I was the portfolio manager, we accumulated $5 billion of AUM or assets under management. So, that allowed me to, with the support of my partners, launch Channing Capital Management. And we opened our doors in 2004. To be specific of that. There was a little garden leave in there, and that also coincided with the opportunity to do BCM as well. So that worked out well in terms of timing.
[00:08:13] Sean Li: Wait. So, you were doing the executive MBA, while you were founding this investment firm?
[00:08:20] Eric McKissack: Yeah. And also the garden leave provided a window to do that as well.
[00:08:24] Sean Li: Wow.
[00:08:24] Eric McKissack: So, the strategy was built on what I had been involved with before, but also, we tried to have some nuances just as Warren Buffet, probably the most famous value investor of all time has expanded his canon to include different types of companies. We try to evolve in our thinking about what is of value company no more has that been convoluted in recent years when you find even companies like Google in a value benchmark, for large-cap anyway. So we tried to get involved with that evolution. However, it’s a very challenging time to be a traditional investor when there’s so much technology out there and so many different players and so many different strategies.
There are still people who’ve done it successfully and they were, I think there will always be room for a genius in this space, not to say that I had it, but there will always be room for that. But there also is going to be opportunity for a technology to impact as it has the way decisions are made in this space.
[00:09:25] Sean Li: It’s interesting to say that. I mean, I have a finance background, definitely not as deep as you, but with just my rudimentary understanding of finance and the markets, I would think value investing would still win out because you can have the Robin Hoods of the world, you can have machine-learning-based investment, technology, and whatnot, but those I feel like would only really affect short-term volatility.
[00:09:51] Eric McKissack: Yes, I think in general, that’s correct. I agree completely with that. I think the trick is that because all of our timetables including institutions and retail investors are so short, sometimes periods of overvaluation and undervaluation can last very long, longer than the patience of your clients. So clients may not be patient enough to recognize that there’s a bubble brewing and want to go where they think the grass is greener, to another manager, or do a reallocation. Ultimately, markets are still about human nature no matter how much technology is introduced into the process. And human nature can sometimes lead to business outcomes that are not favorable even for the most talented investment managers.
[00:10:37] Sean Li: I guess you definitely face the same issues that the VC funds that I’ve been talking to face as well. They had to get the money out at a certain time. So I never really considered that for an investment firm as well. That makes a lot of sense. I learned something today.
I do have to ask, you know, the early 2000 was not 2022 and you had mentioned that there weren’t many minority-owned investment firms. Did you face challenges raising capital for your first fund?
[00:11:05] Eric McKissack: Yeah, for sure. There are always challenges in raising money, in any business or any investment entity. And I can’t say that the challenges were strictly based on pure discrimination. But I think what often happens is that certain types of resumes get more of a path or more of a benefit of the doubt than others. You’ll hear about these firms that were launched by someone who came out of Goldman and they have a track record and they have a billion dollars as soon as they opened the doors. And that’s not to say that doesn’t happen for some diverse candidates, that they have the same kind of resumes, but that wasn’t the background that I had.
I came out of another minority-owned firm to launch a minority firm. And while that firm had a great track or read a great reputation, I don’t think we necessarily got the same benefit of the doubt. It was more like, okay, well, let’s see what you can do in this new environment. And then we’ll give you money if we like what we see. So we were able to get capital and some funds to manage. And I think that was on the strength of the experience that I’ve had, but I’m not sure that another better-situated portfolio manager might not have gotten a better opportunity. It’s counterfactual. So I can’t really prove it, but that’s the observation I had of seeing at least some managers coming out and getting raving, incredible amounts of money out of the gate.
[00:12:25] Sean Li: Yeah, I can’t imagine what that’s like, starting an investment management firm.
[00:12:32] Eric McKissack: It’s very challenging. I think the people who are most successful at it are those that have been able to develop track records through a prior experience and have the kind of blue-chip backgrounds, as well as client, whether it’s high net worth individuals, ultra-high net worth individuals or institutional support. But very often too, it takes a certain person to decide they want to do that because if you’re at a successful firm and you have a great track record, then a lot of people are very comfortable staying there because they are very often making very high compensation. There may be golden handcuffs. There are all kinds of reasons why starting a business is something you have to be highly motivated about.
And I used to say that, when I was with the launch of Channing and especially in the early years and along the way too, that some days I’d say, “Oh, this is great. Why did I take so long to do this?” And other days I would say, “Oh, you’re too old for this. Why did you do this?” It was an emotional rollercoaster at times between those two emotional extremes.
[00:13:33] Sean Li: Yup. That’s what it feels like on a day to day for me as well.
[00:13:37] Eric McKissack: You’re living the entrepreneurial experience that is to be expected. That’s what I would say about it.
[00:13:44] Sean Li: Yeah, so I graduated my undergrad in 2007 in Michigan. I mention this, I remind people a lot that Michigan in the Midwest had been impacted by the downturn before the subprime mortgage crisis because of the auto industry, the year prior. And so, I’m really curious how did Channing stay alive, say make it through the 2008 reckoning?
[00:14:08] Eric McKissack: I would say the main way that we manage is the way many entrepreneurial organizations managed just as you see certain types of businesses managing through the pandemic. And that is we didn’t have to lay off anyone and we didn’t cut salaries of the staff, but the partners, the three of us took significant pay cuts. We just tightened our belts. And as you know, there’s a good news, bad news story about traditional investment management company, certainly this is an asset through on certain types of fund products where the fees that are awarded the sponsors may be relatively level for a period. But in investment management long-only strategies, typically your revenues go up and down with the market, assuming you aren’t able to gather more assets as the market goes down. Well, what typically happened in our space is that the money just froze up because people were like deers in headlights, not sure what to do. As the market went down 10, 20, 30, 40%, our revenues went down significantly. And since it’s a high fixed cost business, your profitability evaporates because you got all these fixed costs of equipment and services. And since all of your talent is really constant, most of your talents and the people that work for you, that’s why we decided we wanted to keep them.
[00:15:34] Sean Li: Yeah.
[00:15:34] Eric McKissack: So the shorter answer to your question is we just tighten our belts and held our breath and got through it. But I think we were fortunate in some ways in that we didn’t have a big fancy office or were lots of expenses. We were still an emerging firm and we didn’t have a huge staff. And so it wasn’t as much of a sacrifice to tighten our belts as it might’ve been if we had been a much larger organization and it wasn’t as challenging as it would be for some of the larger ones to figure out how to not cut to the bone.
[00:16:09] Sean Li: Yeah, that makes sense. It’s really inspiring to hear that type of leadership where you try your best to not lay off staff or cut their salaries, and cut your own. That’s our mentality as well for my co-founder and I. We can suck it up. We’re all in it for the long game.
[00:16:24] Eric McKissack: That’s the way you want to think about it. Sometimes our spouses don’t fully appreciate what that means, but it is. And in a few years, they are happy that you stayed the course, assuming you’re successful, but then again, sometimes some of these businesses are not successful. So, you dust yourself off and you go on to the next thing. I’ve seen that happen as well.
[00:16:46] Sean Li Li: You recently retired, right?
[00:16:48] Eric McKissack: Yes.
[00:16:48] Sean Li: Semi-retired?
[00:16:49] Eric McKissack: I call myself semi-retired, which means that I’m not staring at the Bloomberg all day and picking stocks for institutional clients. But I am engaged through professional and civic board work as you alluded to earlier.
[00:17:04] Sean Li: Yeah. So, what’s the road on from here?
[00:17:06] Eric McKissack: I plan to continue with the professional board, commitments. I chair a ETF fund board that is part of the Northern Trust product lineup. And I’ve been doing that since the launch of the fund family. So that’s been a really terrific experience to see an ETF fund organization go from 0 to over 20 billion in AUM now. And in 2014, I joined as a trustee or director of a fund family that’s part of the Morgan Stanley lineup for its proprietary fund family called Pathway. I should have mentioned that the Northern trust fund is called FlexShares Funds. And they all have their own branding. And then the Morgan Stanley fund families called Pathway Funds. And so I’m the director there.
And then last year I joined the board of Farmer Mac, which is a New York Stock Exchange GSE government-sponsored enterprise. And many people haven’t heard of it, but they have heard of Freddie Mac or Fannie Mae, and Farmer Mac is the rural land agriculture and cooperatives equivalent to those. So that’s been a really interesting experience in just a few months in that it’s a hybrid of government issues with the publicly-traded company. And so, I’m seeing elements of both in the responsibilities and the role there. And then finally the family business McKissack & McKissack, which as I mentioned earlier, is a third-generation business. I serve on the board there.
[00:18:44] Sean Li: For those of us that aspired to be board directors or be invited to become board directors, what’s kind of the motivation for you personally to be a board director of these organizations?
[00:18:56] Eric McKissack: In terms of the investment, they each have a different emotional or professional tie for me. The two fund boards obviously keep me connected with the investment management industry. So, I’m able to, in one case, see managers present including firms similar to the one that I worked at. In the other case, I get to see the CIOs of those organizations, the economist pay attention with market outlook, and all of those. In the case of Farmer Mac, I didn’t mention that my maternal grandfather was a farmer so the idea of sustainability of America’s every culture and rural success is of interest to me, and I had a tie there. And also in the context of global food supply. It’s proven to be a very interesting experience in the short term. And finally the family business. Not surprisingly that has a personal and emotional role in my life, given what I mentioned earlier about growing up in an environment that was very influential.
[00:19:57] Sean Li: Yeah. It makes a lot of sense. You know, kind of the end of the interview, I like to ask some fun questions. What’s something that you’re looking forward to this New Year?
[00:20:06] Eric McKissack: I’m looking forward to travel, hopefully. When I retired or transition from a full-time role at Channing at the end of 2019, my vision was to have a significant amount of travel in my plans. That’s a hobby of mine. So, in January, February of 2020, I went without any foresight. I was in London, I was in San Francisco, in Miami, I was in New York, I was in Vancouver. I was all over the place. And then it came to an abrupt halt in March of 2020, as you can imagine. And so, I’m hoping that we finally get to a point where travel is comfortable and not so complicated thing. And especially internationally, I’ve only been out of the country once since that time. And that was much more of a hassle than even international travel is.
[00:21:01] Sean Li: Yeah.
[00:21:02] Eric McKissack: Well, pandemic and getting tested before, tested during, tested before I come back and the idea of doing what I would like to do and going to different countries in succession, I would not want to do that now. I think it’s just too, even if you could figure it out, it would take away the pure joy of travel. So that’s one thing that I would like to do again, is travel again. I think that’s number one. We have family in London and that one trip that I took was to see them. And I would like to see the grands more often than once every two years. So our prior cadence was twice a year. Hopefully, that will return.
[00:22:31] Sean Li: Sounds great. Well, thank you so much, Eric, for coming on this podcast. It was a real pleasure having you.
[00:22:36] Eric McKissack: Yeah, it was great to meet you, and speak with you.
[00:22:36] Sean Li: Oh, there’s one last thing, you know, if a fellow Haasie is listening and there’s one reason for them to connect with you. What might that be? What is something a passion or interest where you would love for a Haasie who has a similar passion or interest to reach out to you?
[00:22:54] Eric McKissack: One of the things that we didn’t talk about is my interest. I don’t know if this applies or not, but clearly, investment management careers is something that I have an interest in life, support people who were trying to pursue that. But I am also, in a hobby area, I’m interested in art collecting. I’m an art collector. And I also am finding that the art arena as an asset class is becoming of interest. And so that’s something that I’m getting involved with through some friends and colleagues that I’ve developed here in Miami as a big art fair. As you may know, Miami needs our Basel and so that’s something that might be of mutual interest with some other Haasies.
[00:23:33] Sean Li: Are there any certain periods of art that you’d like to collect?
[00:23:36] Eric McKissack: Well, I’m more of a contemporary collector. I’ve always said that I like to know the artist if possible. And so I would say mid-century to the present, or modern into contemporary, I’d say would be various of most of interest to me. It just so happens that an area that’s on fire, contemporary, particularly, and which makes it harder perhaps more speculative in some ways. But it is an interesting way that some people who have wealth are treating that as an asset class and as a repository for their wealth.
[00:24:07] Sean Li: It’s also a great way to support living artists.
[00:24:10] Eric McKissack: Absolutely. Absolutely.
[00:24:12] Sean Li: Yeah.
[00:24:12] Eric McKissack: That’s another part of it as well.
[00:24:15] Sean Li: That’s amazing. Thank you so much, Eric.
[00:24:17] Eric McKissack: Alright, my pleasure. Thank you.